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U.S. Federal Disposal of Excess Nuclear Material Inventory

The United States Enrichment Corporation Privatization Act of 1996 was enacted to protect the public interest in maintaining reliable domestic uranium, conversion and enrichment industries from the Federal Government’s disposition of excess nuclear material inventory.Â

Unfortunately, we believe the U.S. Department of Energy has been pursuing actions that are damaging the domestic uranium and conversion industries, contrary to the law’s intent.

The DOE is selling the taxpayers’ uranium and conversion inventories via barter transactions to fund decontamination and decommissioning operations for defunct enrichment facilities, which previously supplied defense and later utility enrichment services.

The barter transactions are contributing to extreme downward pressure on uranium and conversion market prices by effectively dumping the excess uranium material inventory into the market at prices below production costs.

The amount of uranium from barter transactions is well in excess of current domestic production levels.

The barter transactions are improper as the DOE is conducting these transactions outside the congressional appropriations process.

Furthermore, the U.S. utility industry has already paid for decontamination and decommissioning expenses through toll enrichment contracts and then again with well over $2.2 billion collected under the Energy Policy Act of 1992.

The DOE has stated it is committed to maintaining a strong domestic uranium industry. However, to date, the DOE has damaged the domestic uranium industry by its uranium barter transactions. With the May 2014 Secretarial Determination, DOE will transfer 2,705 Metric Tons of Uranium (MTU) into the market annually, an amount consisting of 15% of the total annual fuel requirements of domestic U.S. reactors.Â This amount also constitutes a 50% increase over the 10% limit DOE agreed to abide by in its 2008 Management Plan. DOE transfers over the next four years are larger than all of the U.S. utility uncommitted requirements.Â Over the next two years, DOE’s planned transfers encompass more than 100% of the global uncommitted utility demand. Over the next three years, DOE’s planned transfers represent approximately two-thirds of global uncommitted utility requirements.

In a post Fukushima environment, spot uranium prices have weakened to well below the costs of production for every single U.S. producer. In May 2014, the U.S. Energy Information Administration (EIA) reported that the Domestic Uranium Industry’s operating (production) costs were about $47 to produce a pound of uranium.Â After inclusion of all other costs associated with a project (drilling, land, production, exploration, reclamation, etc.), the all-in costs rise to about $67 per pound.Â

In 2013, the DOE dumped over 8 million pounds of uranium into the market.Â That quantity is almost double what the entire U.S. industry produced and is more than the total volume the U.S. utilities purchased on the spot market in 2013.Â

We believe it is disingenuous for the DOE to claim its actions do not have an adverse material impact on the domestic uranium and conversion industries.Â Further, we believe the taxpayer is not receiving fair market value for the uranium and conversion the DOE is selling. Â Their continued sales are contributing to a downward spiral in market price.Â In sum, we see DOE actions inconsistent with and a clear violation of U.S. law.

Under the Privatization Act section 3112 (d)(2)(b), the Secretary of Energy is required to make a determination that sales or transfers of natural or enriched uranium do not have an adverse material impact on the domestic uranium mining, conversion or enrichment industry (Secretarial Determination).Â Among other requirements, this law also requires that the price paid to DOE not be less than fair market value of the material. In the May, 2014 Secretarial Determination, the DOE stated it was planning to transfer 2,705 MTU of natural uranium equivalent per calendar year.Â This quantity coupled with other amounts already in DOE’s disposition pipeline amount to a total commercial impact of about 7.4 million pounds of uranium per year for the next decade.Â This is well beyond what the U.S. is expected to produce and will further damage the domestic uranium industry.Â The transfers are also expected to displace 2.7 million Kilograms of Uranium (KgU) of conversion services per year with a resulting adverse material impact on the conversion industry.

The UPA responded to the Secretarial Determination stating, “Market prices have dropped more than 60% since the Fukushima accident and the market analysis cited by the department finds these transfers will drive prices down an additional 10% and lead to more job losses.Â If this doesn’t constitute an adverse material impact, what does?”Â

The UPA also noted, “The DOE is violating its legal obligation to ensure these transfers do not have an adverse material impact on the domestic industry.”

Conversion producer ConverDyn noted that the Secretarial Determination is extremely disappointing and ignores the facts provided by the industry and the market impact analysis opinions presented by the DOE’s contractor.

The Government Accountability Office (GAO) released a report on June 9, 2014 about the DOE’s management of the federal uranium inventory.Â The report raised serious questions regarding the legality of various DOE actions.Â Referring to some of DOE’s uranium transactions, the GAO report stated, “DOE likely lacked authority for the largest uranium transaction, and the other transactions raise additional legal concerns.”Â Â

The report also questioned the basis of the market impact studies that provided the basis for DOE’s Secretarial Determinations, noting, “Without taking quality assurance steps, DOE cannot be assured of the reliability and quality of the analyses conducted. Moreover, DOE cannot be certain of the studies’ conclusions, which the department used as the basis for the Secretary’s determination that DOE’s uranium transfers did not have an adverse material market impact and to meet its legal requirements under the USEC Privatization Act.”

The UPA’s statement in response to the GAO report said, “The DOE’s commissioned 2014 market analysis supporting its most recent DeterminationÂ found DOE’s planned transfers will result in additional job loss and drive down the price of uranium, which is already well below our production costs. It is interesting to note that even DOE’s own contractor is no longer willing to claim these are not adverse impacts. That begs the question of how DOE’s determination of no material adverse impact is made in the absence of supporting data. In the GAO report, DOE acknowledges the Department lacks the in-house expertise to perform the analysis. Given the significant effect these transfers have on our industry, any market analysis should be thoroughly reviewed and submitted for public comment before being finalized.”

UPA members are committed to working with Congress and the Administration to develop long-term energy solutions and ensure a sustainable and stable domestic supply of uranium to meet current and future reactor demands to underpin a strong economy. UPA members are asking the DOE to halt or at least to sharply curtail the sale of the excess federal nuclear material inventory until there is a market recovery to levels where U.S. producers can sustain profitable operations.
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Please contact your local congressional representative to express your support of a strong and sustainable domestic uranium industry. For more information, please contact us.